Installment Credit builds a foundation for your score. These loans can only bring scores up so far as long as you are never late; and scores typically go down when they are paid off.

Revolving Credit can have a dramatic affect on credit scores both positive and negative on a monthly basis. Balances reported are the main reason for this drama. High balances will drive credit scores down whereas a balance reporting under 30% of the credit limit will have a positive effect on scores.

ABOUT THE PIE CHART

As you can see there are several factors to a credit score. The industry is pretty tight-lipped about the specifics in their algorithms, but this gives you a basic understanding of what and how activity can affect your credit scores.

Payment History shows your balance each month, and in some cases the payment made. This also indicates delinquencies (Lates), and other status (Charge-Off, Closed, Repos, Foreclosure, and others).

Amounts Owed is your total amount of debt in relation to Total Available Credit. This area is also impacted by utilization of revolving credit (see Rules about Credit Cards).

Stephen W. Gangey, SME Credit
Credit Improvement Specialist

Length of History, or time on account, is a significant piece of the score. When you, or the creditor, closes an account this area takes a hit in the way of a lowered score, because the account’s positive affect is removed.

Types of Credit – Looking for a balance of different types of credit. Installment includes several types in the category; Loans, Mortgage, Education, and Auto to name a few. Revolving includes Credit Cards, Charge Cards, and other Lines of Credit including HELOCs.

New Credit – Too much in a short period of time can negatively affect credit scores.

Next Week we’ll talk about Lates, and how they affect credit scores.